Appendix 1 Unaudited Statements of Financial Position as at 30 June 2018 The Group The Bank As at As at As at As at 30-06-2018 31-12-2017 30-06-2018 31-12-2017 Note ASSETS Cash and short-term funds 434,512 588,245 170,675 214,687 Deposits and placements with banks and other financial institutions - 10,313-10,313 Financial assets at fair value through profit or loss ("FVTPL") 11 355,233 95,051 294,179 69,269 Financial assets at fair value through other comprehensive income ("FVOCI") 11 4,758,894-4,758,894 - Financial assets at amortised cost 11 48,304-48,304 - Financial investments available-for-sale 11-4,824,526-4,793,901 Financial investments held-to-maturity 11-8,107-8,107 Loans, advances and financing 12 1,384,331 1,208,511 1,384,331 1,208,511 Trade receivables 13 801,356 549,359 727,945 420,747 Derivative financial assets 54,081 54,950 54,081 54,950 Commodity Gold at FVTPL 31,584 32,198 - - Other assets 14 56,011 33,958 51,855 30,713 Statutory deposits with Bank Negara Malaysia 188,702 169,000 188,600 169,000 Amount due from subsidiaries - - 21,920 21,660 Investment in subsidiaries - - 124,121 124,121 Investments in associated company - - 732 732 Taxation recoverable 10,295 12,338 10,233 12,202 Deferred tax assets 28,356 22,165 20,193 10,817 Property and equipment 32,512 33,136 20,102 20,719 Intangible assets 323,449 323,801 316,339 316,969 Total ASSETS 8,507,620 7,965,658 8,192,504 7,487,418 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits from customers 15 4,991,409 4,491,527 4,991,409 4,491,527 Deposits and placements of banks and other financial institutions 16 562,081 590,600 562,081 590,600 Obligations on securities sold under repurchase agreements 17 95,476 96,013 95,476 96,013 Trade payables 18 869,335 676,938 724,671 393,714 Derivative financial liabilities 49,295 54,808 49,295 54,808 Amount due to holding company 42 - - - Amount due to related companies 9,267 9,222 - - Other liabilities 19 327,973 384,152 228,601 254,715 Provision for taxation 5,719 6,964 - - Total LIABILITIES 6,910,597 6,310,224 6,651,533 5,881,377 Share capital 999,800 999,800 999,800 999,800 Reserves 20 542,708 603,086 541,171 606,241 1,542,508 1,602,886 1,540,971 1,606,041 Non-controlling interests 54,515 52,548 - - SHAREHOLDERS' EQUITY 1,597,023 1,655,434 1,540,971 1,606,041 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8,507,620 7,965,658 8,192,504 7,487,418 COMMITMENTS AND CONTINGENCIES 30 7,333,153 7,706,101 7,333,153 7,706,101 CAPITAL ADEQUACY Basel III CET 1 capital ratio 29 31.658% 34.806% 34.296% 40.546% Tier 1 capital ratio 29 32.137% 35.064% 34.296% 40.546% Total capital ratio 29 32.971% 35.442% 35.225% 40.546% After deducting proposed dividends: CET 1 capital ratio (net of proposed dividends) 29 30.435% 32.346% 32.827% 37.449% Tier 1 capital ratio (net of proposed dividends) 29 30.914% 32.604% 32.827% 37.449% Total capital ratio (net of proposed dividends) 29 31.748% 32.982% 33.756% 37.449% The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 1
Unaudited Income Statements The Group Individual Quarter Cumulative Quarter Current Preceding Year Current Preceding Year Financial Corresponding Financial Corresponding Period Period Period-to-date Period-to-date 30-06-2018 30-06-2017 30-06-2018 30-06-2017 Note Interest income 21 75,653 71,446 146,520 138,820 Interest expense 22 (57,001) (54,934) (108,585) (105,629) Net interest income 18,652 16,512 37,935 33,191 Fee and commission income 23(a) 132,770 133,730 274,069 240,804 Fee and commission expense 23(b) (39,386) (51,037) (94,094) (89,354) Net fee and commission income 93,384 82,693 179,975 151,450 Net gain and losses on financial instruments 24 21,624 28,019 47,373 64,034 Other operating income 25 4,364 7,718 5,314 12,201 Net income 138,024 134,942 270,597 260,876 Other operating expenses 26 (92,356) (88,302) (182,858) (173,420) Operating profit before allowances 45,668 46,640 87,739 87,456 Allowances of credit impairment losses 27(a) (4,209) - (4,081) - (Allowances)/write-back of losses on loans, advances and financing and receivables 27(b) - (198) - 747 Impairment loss on securities 28 - - - (712) Profit before zakat and taxation 41,459 46,442 83,658 87,491 Zakat (406) (386) (643) (723) Profit before taxation 41,053 46,056 83,015 86,768 Taxation (9,056) (10,555) (18,320) (20,291) Net profit after zakat and taxation 31,997 35,501 64,695 66,477 Attributable to: - Equity holders of the Bank 25,882 29,984 53,640 57,521 - Non-controlling interests 6,115 5,517 11,055 8,956 31,997 35,501 64,695 66,477 Earnings per share: - basic/fully diluted (sen) 3.32 3.84 6.88 7.37 The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 2
Unaudited Statement of Comprehensive Income The Group Net profit after zakat and taxation Individual Quarter Cumulative Quarter Current Preceding Year Current Preceding Year Financial Corresponding Financial Corresponding Period Period Period-to-date Period-to-date 30-06-2018 30-06-2017 30-06-2018 30-06-2017 31,997 35,501 64,695 66,477 Other comprehensive income: Net fair value changes in financial assets at FVOCI (24,939) - (27,287) - Net fair value changes in financial investments available-for-sale - 44,267-53,338 Net credit impairment losses change in financial assets at FVOCI (85) - (132) - Net gain on financial assets at FVOCI reclassified to profit or loss on disposal (113) - (1,032) - Net (gain)/loss transferred to profit or loss on disposal of financial investments available-for-sale - 295 - (3,595) Net transfer to profit or loss on impairment of financial investments available-for-sale - - - 660 Deferred tax on financial assets at FVOCI 6,253-6,796 - Deferred tax on financial investments available-for-sale - (10,779) - (12,107) Other comprehensive income for the period, net of tax (18,884) 33,783 (21,655) 38,296 Total comprehensive income for the period 13,113 69,284 43,040 104,773 Attributable to: Equity holders of the Bank 6,998 63,872 32,073 95,830 Non-controlling interests 6,115 5,412 10,967 8,943 Total comprehensive income 13,113 69,284 43,040 104,773 The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 3
Unaudited Income Statements The Bank Individual Quarter Cumulative Quarter Current Preceding Year Current Preceding Year Financial Corresponding Financial Corresponding Period Period Period-to-date Period-to-date 30-06-2018 30-06-2017 30-06-2018 30-06-2017 Note Interest income 21 75,213 71,267 145,609 138,484 Interest expense 22 (57,001) (54,934) (108,585) (105,629) Net interest income 18,212 16,333 37,024 32,855 Fee and commission income 23(a) 30,025 24,001 58,789 50,620 Fee and commission expense 23(b) - - - - Net fee and commission income 30,025 24,001 58,789 50,620 Net gain and losses on financial instruments 24 22,750 27,927 47,730 63,898 Other operating income 25 23,448 8,087 27,826 12,342 Net income 94,435 76,348 171,369 159,715 Other operating expenses 26 (52,630) (53,059) (107,981) (110,277) Operating profit before allowances 41,805 23,289 63,388 49,438 Allowances of credit impairment losses 27(a) (4,215) - (4,087) - (Allowances)/write-back of losses on loans, advances and financing and receivables 27(b) - (198) - 747 Impairment loss on securities 28 - - - (712) Profit before zakat and taxation 37,590 23,091 59,301 49,473 Zakat (319) (308) (475) (581) Profit before taxation 37,271 22,783 58,826 48,892 Taxation (4,372) (5,419) (9,814) (11,474) Net profit after zakat and taxation 32,899 17,364 49,012 37,418 Attributable to: - Equity holders of the Bank 32,899 17,364 49,012 37,418 Earnings per share: - basic/fully diluted (sen) 4.22 2.23 6.28 4.80 The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 4
Unaudited Statement of Comprehensive Income The Bank Net profit after zakat and taxation Individual Quarter Cumulative Quarter Current Preceding Year Current Preceding Year Financial Corresponding Financial Corresponding Period Period Period-to-date Period-to-date 30-06-2018 30-06-2017 30-06-2018 30-06-2017 32,899 17,364 49,012 37,418 Other comprehensive income: Net fair value changes in financial assets at FVOCI (24,939) - (27,287) - Net fair value changes in financial investments available-for-sale - 44,616-53,379 Net credit impairment losses change in financial assets at FVOCI (85) - (132) - Net gain on financial assets at FVOCI reclassified to profit or loss on disposal (111) - (1,030) - Net (gain)/loss transferred to profit or loss on disposal of financial investments available-for-sale - 295 - (3,595) Net transfer to profit or loss on impairment of financial investments available-for-sale - - - 660 Deferred tax on financial assets at FVOCI 6,253-6,796 - Deferred tax on financial investments available-for-sale - (10,779) - (12,107) Other comprehensive income for the period, net of tax (18,882) 34,132 (21,653) 38,337 Total comprehensive income for the period 14,017 51,496 27,359 75,755 Attributable to equity holders of the Bank: Total comprehensive income 14,017 51,496 27,359 75,755 The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 5
Unaudited Statement of Changes in Equity Attributable to equity holders of the Bank Foreign FVOCI Non- Regulatory exchange revaluation Retained controlling Total Share Capital reserve reserve reserve profits Sub-total interests equity The Group At 1 January 2018 - As previously reported 999,800 11,790 151 (14,466) 605,611 1,602,886 52,548 1,655,434 - Adjustment arising from adoption of MFRS 9-13,186-5,133 (21,830) (3,511) - (3,511) - Adjustment arising from adoption of MFRS 15 - - - - (940) (940) - (940) At 1 January 2018, as restated 999,800 24,976 151 (9,333) 582,841 1,598,435 52,548 1,650,983 Comprehensive income: Net profit for the financial period - - - - 53,640 53,640 11,055 64,695 Other comprehensive income, (net of tax) - Financial investments at FVOCI - - - (21,567) - (21,567) (88) (21,655) Total comprehensive income - - (21,567) 53,640 32,073 10,967 43,040 Transfer to regulatory reserve - 1,126 - - (1,126) - - - Dividend paid - - - - (88,000) (88,000) (9,000) (97,000) At 30 June 2018 999,800 26,102 151 (30,900) 547,355 1,542,508 54,515 1,597,023 Available -for-sale Non- Share Statutory Regulatory revaluation Retained controlling Total Share Capital premium reserve reserve reserve profits Sub-total interests equity The Group At 1 January 2017 780,000 219,800 251,343 9,667 (26,830) 246,496 1,480,476 41,372 1,521,848 Comprehensive income: Net profit for the financial period - - - - - 57,521 57,521 8,956 66,477 Other comprehensive income, (net of tax) - Financial investments available-for-sale - - - - 38,309-38,309 (13) 38,296 Total comprehensive income - - - - 38,309 57,521 95,830 8,943 104,773 Transfer to regulatory reserve - - - 2,340 - (2,340) - - - Transfer pursuant to new BNM guidelines - - (251,343) - - 251,343 - - - Transfer pursuant to Companies Act 2016 219,800 (219,800) - - - - - - - Dividend paid - - - - - (10,800) (10,800) - (10,800) At 30 June 2017 999,800 - - 12,007 11,479 542,220 1,565,506 50,315 1,615,821 The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 6
Unaudited Statement of Changes in Equity Attributable to equity holders of the Bank FVOCI Regulatory revaluation Retained Total Share Capital reserve reserve profits equity The Bank At 1 January 2018 - As previously reported 999,800 11,790 (14,762) 609,213 1,606,041 - Adjustment arising from adoption of MFRS 9-13,186 5,434 (22,109) (3,489) - Adjustment arising from adoption of MFRS 15 - - - (940) (940) At 1 January 2018, as restated 999,800 24,976 (9,328) 586,164 1,601,612 Comprehensive income: Net profit for the financial period - - - 49,012 49,012 Other comprehensive income, (net of tax) - Financial investments at FVOCI - - (21,653) - (21,653) Total comprehensive income - - (21,653) 49,012 27,359 Transfer to regulatory reserve - 1,126 - (1,126) - Dividend paid - - - (88,000) (88,000) At 30 June 2018 999,800 26,102 (30,981) 546,050 1,540,971 Available -for-sale Share Statutory Regulatory revaluation Retained Total Share Capital premium reserve reserve reserve profits equity At 1 January 2017 780,000 219,800 251,343 9,667 (26,901) 274,279 1,508,188 Comprehensive income: Net profit for the financial period - - - - - 37,418 37,418 Other comprehensive income, (net of tax) - Financial investments available-for-sale - - - - 38,337-38,337 Total comprehensive income - - - - 38,337-37,418-75,755- Transfer to statutory reserve - - - 2,340 - (2,340) - Transfer pursuant to new BNM guidelines - - (251,343) - 251,343 - Transfer pursuant to Companies Act 2016 219,800 (219,800) - - - - - Dividend paid - - - - - (10,800) (10,800) At 30 June 2017 999,800 - - 12,007 11,436 549,900 1,573,143 The Group and the Bank have applied MFRS 9 and MFRS 15 on 1 January 2018. Under the transition methods adopted, comparative information are not restated. 7
Unaudited Statement of Cash Flows The Group The Bank 30-06-2018 30-06-2017 30-06-2018 30-06-2017 Cash flow from operating activities Net profit before tax for the financial period 83,015 86,768 58,826 48,892 Adjustments for items not involving the movement of cash and cash equivalents: Interest income - financial assets at FVTPL (9,869) (10,560) (9,869) (10,560) - financial assets at FVOCI (100,387) - (100,387) - - financial assets at amortised cost (1,297) - (1,297) - - financial investments available-for-sale - (98,835) - (98,835) - financial investments held-to-maturity - (1,025) - (1,025) Dividend income: - financial assets at FVTPL (2,217) (133) (1,332) (133) - financial assets at FVOCI (1,942) - (1,942) - - from a subsidiary - - (21,000) - - financial investments available-for-sale - (8,278) - (8,152) Property and equipment written-off 13 1 13 - Gain on disposal of property, plant and equipment (121) (414) (104) (130) Gain arising from disposal/redemption of: - derivative instruments 54-54 - - financial assets at FVTPL (33,522) (40,871) (33,848) (40,871) - financial assets at FVOCI (1,100) - (1,100) - - financial investments available-for-sale - (8,409) - (8,367) Depreciation of property and equipment 4,541 4,333 2,984 2,964 Amortisation of intangible assets 1,171 1,131 630 606 Net accretion of discounts/(amortisation of premiums) 2,203 2,131 2,203 2,131 Unrealised (gain)/loss on derivative instruments (739) 4,201 (739) 4,201 Unrealised loss on financial assets at FVTPL 2,105 280 1,189 248 Impairment loss on financial investment available-for-sale - 712-712 Net writeback of collective impairment - (705) - (705) Net allowances of expected credit loss ("ECL") 3,299-3,305 - Net writeback of individual impairment 815 37 815 37 Allowances for other assets - (6) - (6) Zakat 643 723 475 581 Unrealised foreign exchange gain 2,613 (6,076) 6,742 (6,294) Operating loss before changes in operating assets and liabilities (50,722) (74,995) (94,382) (114,706) (Increase)/Decrease in operating assets Deposits and placements with banks and other financial institutions 10,313 18 10,313 71 Financial assets at FVTPL (216,679) 253,041 (181,050) 281,406 Loans, advances and financing (180,634) (136,363) (184,017) (136,363) Statutory deposits with Bank Negara Malaysia (19,702) (3,360) (19,600) (3,360) Intercompany balances - - (260) 1,742 Trade receivables (252,080) (577,945) (307,281) (134,000) Derivative financial assets (1,059) 44,941 (5,188) 45,159 Reverse repurchase agreements - (19,502) - (19,502) Commodity Gold at FVTPL 614 - - - Other assets (23,393) 32,204 (22,487) 33,528 (682,620) (406,966) (709,570) 68,681 Increase/(decrease) in operating liabilities Deposits from customers 499,882 80,397 499,882 80,397 Deposits and placements of banks and other financial institutions (28,519) 135,451 (28,519) 135,451 Repurchase agreements (537) (2,530) (537) (2,530) Trade payables 192,397 461,497 330,957 151,486 Amount due to related companies 45 (90) - - Amount due to ultimate holding company 42 - - - Derivative financial liabilities (5,513) (55,920) (5,513) (55,919) Other liabilities (63,620) 9,716 (32,144) 16,060 594,177 628,521 764,126 324,945 Cash (used in)/generated from operating activities (139,165) 146,560 (39,826) 278,920 8
Unaudited Statement of Cash Flows The Group The Bank 30-06-2018 30-06-2017 30-06-2018 30-06-2017 Cash flows from operating activities (continued) Net taxation paid (14,155) (11,422) (8,906) (6,169) Zakat paid (1,231) (1,039) (1,231) (744) Net cash (used in)/generated from operating activities (154,551) 134,099 (49,963) 272,007 Cash flow from investing activities Proceeds from disposal of property and equipment 163 639 104 131 Purchase of property and equipment (3,972) (5,445) (2,381) (2,587) Purchase of intangible assets (819) (730) - - Interest received: - financial assets at FVOCI 100,387-100,387 - - financial investments available-for-sale - 98,835-98,835 - financial assets at amortised cost 1,297-1,297 - - financial investments held-to-maturity - 1,025-1,025 Net purchase of : - financial assets at FVOCI (20,577) - (20,553) - - financial investments available-for-sale - (343,783) - (340,712) Net proceeds on redemption of : - financial assets at amortised cost (43,815) - (40,432) - - financial investments held-to-maturity - 2,074-2,074 - financial assets at FVOCI 63,519-32,894 - Capital injection for subsidiaries - - - (2,904) Capital injection for associate - - - (726) Acquisition of an equity interest in an associate - - - (52) Dividend income received from: - financial assets at FVOCI 1,942-1,942 - - financial investments available-for-sale - 8,278-8,152 - subsidiary - - 21,000 - Net cash generated from/(used in) investing activities 98,125 (239,107) 94,258 (236,764) Cash flow from financing activities Dividend paid by a subsidiary to minority interests (9,000) - - - Dividend paid (88,000) (10,800) (88,000) (10,800) Net cash used in financing activities (97,000) (10,800) (88,000) (10,800) Net increase in cash and cash equivalents (153,426) (115,808) (43,705) 24,443 Cash and cash equivalents at beginning of the financial period 539,126 554,378 165,568 218,352 Cash and cash equivalents at end of the financial period 385,700 438,570 121,863 242,795 Analysis of cash and cash equivalents Cash and short term funds 434,512 487,275 170,675 291,500 Amount held on behalf of clients and commissioned dealer's representatives (48,812) (48,705) (48,812) (48,705) Cash and short-term funds and deposits and placements with banks and other financial institutions with original maturity of more than three months - - - - Cash and cash equivalents at end of the financial period 385,700 438,570 121,863 242,795 9
1. Review of financial performance - - - - - The Group recorded a lower Profit Before Tax ("PBT") of RM83.0 million for the 6 months period ended 30 June 2018 compared to a PBT of RM86.8 million for the previous corresponding period. The investment bank contributed RM58.8 million (including dividend from subsidiary of RM21.0 million) (30.6.2017: RM48.9 million) while the asset management business contributed RM45.9 million (30.6.2017: RM38.6 million) to the Group's PBT in the current period under review. Summarised analysis of the Group PBT for the 6 months period ended 30 June 2018 are as follows: Net interest income of RM37.9 million was higher than the net interest income of RM33.2 million recorded in the previous corresponding period primarily due to higher average interest earning assets in the current period under review. Net fee and commission income registered an increase from RM151.5 million in the previous corresponding period to RM180.0 million in the current period under review. The increase was primarily due to the higher net brokerage income, corporate advisory fees and higher unit trust management and incentive fees earned from the asset management business in the current period. Net gain and losses on financial instruments registered a decrease from RM64.0 million in the previous corresponding period to RM47.4 million in the current period mainly due to lower gains on disposal of financial assets measured at FVTPL and FVOCI during the current period. Other operating income registered a decrease from RM12.2 million to RM5.3 million in the current period mainly due to lower net foreign exchange gain. Operating expenses incurred for the period under review were higher at RM182.9 million compared to RM173.4 million incurred in the previous corresponding period contributed mainly by higher personnel costs and establishment-related expenses. - Higher allowances of credit impairment losses was mainly due to increase in expected credit losses provided for loans and debt securities. 2. Prospect for the current financial year The Group remains cautiously optimistic for 2018 and 2019. The country's economic prospect remains promising and likely to be supported by healthy domestic demand, while exports growth will be vulnerable to external uncertainties such as the threat of trade war between US and China as well as monetary policy tightening by US Federal Reserve. The Group shall continue to expand its present market leading positions in the securities and asset management businesses, whilst capitalising on potential investment banking activities. The Group shall also continue to build resilience across its businesses taking cognisant that a major part of its business and operations are highly dependent on the performance of the equity and capital markets. 10
3. Basis of preparation The unaudited interim financial statements for the period under review have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ("MFRS"), International Financial Reporting Standards ("IFRS"), Bank Negara Malaysia ("BNM") Guidelines and the requirements of the Companies Act 2016 in Malaysia. The unaudited interim financial statements may be read in conjunction with the annual financial statements for the financial year ended 31 December 2017. The explanatory notes to the unaudited interim financial statements provide an explanation of events and transactions that are significant to an understanding of the changes in the Group and the Bank since the financial year ended 31 December 2017. There are no changes to the accounting policies adopted since the last financial year except for the adoption of MFRS 9 "Financial Instruments" and MFRS 15 "Revenue from Contracts with Customers" with effect from 1 January 2018. In addition to the adoption of these 2 new standards, IFRS 9 introduced a consequential amendment to paragraph 82(a) of IAS 1 "Presentation of Financial Statements" which is effective from 1 January 2018. (i) Adoption of MFRS 9 "Financial Instruments" Classification and measurements MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ("OCI"). The basis of classification depends on the entity's business model and the cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main changes are: - - For financial liabilities classified as FVTPL, the fair value changes due to own credit risk should be recognised directly to OCI. There is no subsequent recycling to profit or loss. When a financial liability measured at amortised cost is modified without this resulting in derecognition, a gain or loss, being the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate, should be recognised immediately in profit or loss. The combined application of the entity s business model and the cash flow characteristics of the financial assets do not result in the significant change in the classification of financial asset when compared to the existing classification of financial assets in the statement of financial position as at 31 December 2017. However, the Group and the Bank have identified certain instruments currently held at financial investments available for sales of which that fail the solely for the payment of principal and interest ( SPPI ) test will be reclassified as fair value through profit or loss ( FVTPL ) with certain equity instruments elected at inception to be fair valued in OCI accordingly on 1 January 2018. The Group and the Bank do not expect a significant impact arising from the changes in classification and measurement of the financial assets. There are no changes to the Group s and the Bank s accounting for financial liabilities. All the financial liabilities, except for derivatives financial liabilities which is at FVTPL, will remain as amortised cost as there has not been significant change in the requirements for financial liabilities under MFRS 9. 11
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) Impairment of financial assets MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The new impairment model requires the recognition of impairment allowances based on expected credit losses ( ECL ) rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost, debt instruments measured at FVOCI, loan commitments and financial guarantee contracts. Under MFRS 9, impairment is measured on each reporting date according to a three-stage expected credit loss impairment model: Stage 1 from initial recognition of a financial assets to the date on which the credit risk of the asset has increased significantly relative to its initial recognition, a loss allowance is recognised equal to the credit losses expected to result from defaults occurring over the next 12 months (12-month ECL). Stage 2 following a significant increase in credit risk relative to the initial recognition of the financial assets, a loss allowance is recognised equal to the credit losses expected over the remaining life of the asset (Lifetime ECL). Stage 3 When a financial asset is considered to be credit-impaired, a loss allowance equal to full lifetime expected credit losses is to be recognised (Lifetime ECL). As all financial assets within the scope of MFRS 9 impairment model will be assessed for at least 12-month ECL, and the population of financial assets to which full lifetime ECL applies is larger than the population of impaired loans for which there is objective evidence of impairment in accordance with MFRS 139, the total allowance for credit losses is expected to increase under MFRS 9 relative to the allowance for credit losses under MFRS 139. In addition, changes in the required credit loss allowance, including the impact of movements between Stage 1 (12-month ECL) and Stage 2 (lifetime ECL) and the application of forward looking information, is recorded in profit or loss, and allowance for credit losses will be more volatile under MFRS 9. The impact of adoption of the MFRS 9 on the Group s and the Bank s classification and measurement categories and opening retained profits as at 1 January 2018 are set out below: The following table shows the original measurement categories in accordance with MFRS 139 and the new measurement categories under MFRS 9 for the Group s financial assets and financial liabilities as at 1 January 2018. MFRS 139 carrying value MFRS 9 carrying value 31 December 2017 Reclassification Remeasurement 1 January 2018 Group Financial assets at amortised cost Cash and short-term funds Opening balance 588,245 - - 588,245 Closing balance 588,245 - - 588,245 Deposits and placements with banks and other financial institutions Opening balance 10,313 - - 10,313 To FVTPL - Negotiable instruments of deposits - (10,313) - (10,313) 10,313 (10,313) - - Financial Investments held-to-maturity ("HTM") Opening balance 8,107 - - 8,107 To financial assets at amortised cost - (8,107) - (8,107) Closing balance 8,107 (8,107) - - Loans, advances and financing Opening balance 1,208,511 - - 1,208,511 To financial assets at amortised cost - (40,497) - (40,497) Remeasurement -expected credit loss ("ECL") - - (3,785) (3,785) Closing balance 1,208,511 (40,497) (3,785) 1,164,229 12
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table shows the original measurement categories in accordance with MFRS 139 and the new measurement categories under MFRS 9 for the Group s financial assets and financial liabilities as at 1 January 2018. (continued) MFRS 139 carrying value MFRS 9 carrying value 31 December 2017 Reclassification Remeasurement 1 January 2018 Group Financial assets at amortised cost Opening balance - - - - From Loans, advances and financing - 40,497-40,497 From HTM - 8,107-8,107 Remeasurement - - (235) (235) Closing balance - 48,604 (235) 48,369 Trade receivables Opening balance 549,359 - - 549,359 Remeasurement - - (105) (105) Closing balance 549,359 - (105) 549,254 Other assets 33,958 - (12) 33,946 Statutory deposits with Bank Negara Malaysia 169,000 - - 169,000 Total financial assets at amortised cost 2,567,493 (10,313) (4,137) 2,553,043 Financial assets at FVOCI Financial investments available-for-sale ("AFS") Opening balance 4,824,526 - - 4,824,526 AFS to FVOCI - debt - (4,487,401) - (4,487,401) AFS to FVOCI -equity - (118,847) - (118,847) AFS to FVTPL - (218,278) - (218,278) Remeasurement - - - - Closing balance 4,824,526 (4,824,526) - - Financial assets at FVOCI - debt Investment securities: Opening balance - - - - From AFS - 4,487,401-4,487,401 From amortised cost - - - - Remeasurement - - (5,092) - Closing balance - 4,487,401 (5,092) 4,487,401 Financial assets at FVOCI - equity Opening balance - - - - From amortised cost - - - - From AFS - 118,847-118,847 Remeasurement - - - - Closing balance - 118,847-118,847 Total financial assets at FVOCI 4,824,526 (218,278) (5,092) 4,606,248 13
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table shows the original measurement categories in accordance with MFRS 139 and the new measurement categories under MFRS 9 for the Group s financial assets and financial liabilities as at 1 January 2018. (continued) Group MFRS 139 carrying value MFRS 9 carrying value 31 December 2017 Reclassification Remeasurement 1 January 2018 Financial assets at FVTPL and derivative financial assets Opening balance 150,001 - - 150,001 From amortised cost - Deposits & placements with banks and other financial institutions - 10,313-10,313 AFS - 218,278-218,278 Total financial assets at FVTPL and derivative financial assets 150,001 228,591-378,592 Other liabilities Opening balance 384,152 - - 384,152 Remeasurement off-balance sheet loan, loan commitments and financial guarantee issues - - (596) (596) Closing balance 384,152 - (596) 383,556 The following table shows the effects of the reclassification of financial assets from MFRS 139 categories into the amortised cost category under MFRS 9. MFRS 9 carrying value 1 January 2018 From financial investments AFS under MFRS 139 Fair value at 31 December 2017 - Fair value gain that would have been recognised during 2018 in OCI if the financial assets had not been reclassified - The following table analyses the impact, net of tax, of transition to MFRS 9 on reserves and retained earnings. The impact relates to the liability credit reserve, the fair value reserve and retained earnings. There is no impact on other components of equity. Impact of adopting MFRS 9 at 1 January 2018 Group Fair value reserve Closing balance under MFRS 139 (31 December 2017) (14,466) Recognition of expected credit losses under MFRS 9 for debt financial assets at FVOCI 5,092 Reclassification of financial assets (debt and equity) from AFS to FVTPL 41 Opening balance under MFRS 9 (1 January 2018) (9,333) Collective allowance (''CA") reserve - 1.2% Closing balance under MFRS 139 (31 December 2017) 11,790 Reserve to retained earnings on adoption of MRFS 9 (11,790) Opening balance under MFRS 9 (1 January 2018) - Regulatory reserve ("RR") - 1% Transfer from retained earnings 24,976 Opening balance under MFRS 9 (1 January 2018) 24,976 14
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table analyses the impact, net of tax, of transition to MFRS 9 on reserves and retained earnings. The impact relates to the liability credit reserve, the fair value reserve and retained earnings. There is no impact on other components of equity. (continued) Impact of adopting MFRS 9 at 1 January 2018 Group Retained earnings Closing balance under MFRS 139 (31 December 2017) 605,611 Reclassification under MFRS 9 (41) Recognition of expected credit losses under MFRS 9 (including loan commitments) (12,571) BNM 1% RR (24,976) Reversal of 1.2% CA reserves 11,790 Reversal of Collective Allowance under MFRS 139 2,746 Deferred Tax 1,222 Opening balance under MFRS 9 (1 January 2018) 583,781 The following table reconciles: the closing impairment allowance for financial assets in accordance with MFRS 139 the opening ECL allowance determined in accordance with MFRS 9 as at 1 January 2018. MFRS 139 MFRS 9 CA ECL ECL 31 December 2017 Reclassification Remeasurement 1 January 2018 Group Loans, advances and financing - Individual and collective impairment 2,756-3,785 6,541 Loans/financing commitments - - 596 596 Financial assets at FVTPL - - - - Financial assets at FVOCI and amortised cost 16,509 (7,818) 5,444 14,135 19,265 (7,818) 9,825 21,272 Deferred tax assets Opening balance 22,165 - - 22,165 Remeasurement - deferred tax assets - - 1,222 1,222 Closing balance 22,165-1,222 23,387 15
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table shows the original measurement categories in accordance with MFRS 139 and the new measurement categories under MFRS 9 for the Bank s financial assets and financial liabilities as at 1 January 2018. MFRS 139 MFRS 9 Carrying value Carrying value 31 December 2017 Reclassification Remeasurement 1 January 2018 Bank Financial assets at amortised cost Cash and short-term funds Opening balance 214,687 - - 214,687 Closing balance 214,687 - - 214,687 Deposits and placements with banks and banks and other financial institutions Opening balance 10,313 - - 10,313 To FVTPL - Negotiable instruments of deposits - (10,313) - (10,313) Closing balance 10,313 (10,313) - - Financial Investments held-to-maturity ("HTM"): Opening balance 8,107 - - 8,107 To financial assets at amortised cost - (8,107) - (8,107) Closing balance 8,107 (8,107) - - Loans, advances and financing: Opening balance 1,208,511 - - 1,208,511 To financial assets at amortised cost - (40,497) - (40,497) Remeasurement - - (3,785) (3,785) Closing balance 1,208,511 (40,497) (3,785) 1,164,229 Financial assets at amortised cost: Opening balance - - - - From Loans, advances and financing - 40,497-40,497 From HTM - 8,107-8,107 Remeasurement - - (235) (235) Closing balance - 48,604 (235) 48,369 Trade receivables Opening balance 420,747 - - 420,747 Remeasurement - - (83) (83) Closing balance 420,747 - (83) 420,664 Other assets 30,713 - (12) 30,701 Statutory deposits with Bank Negara Malaysia 169,000 - - 169,000 Amount due from subsidiaries 21,660 - - 21,660 Amount due from associates 732 - - 732 Total financial assets at amortised cost 2,084,470 (10,313) (4,115) 2,070,042 16
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table shows the original measurement categories in accordance with MFRS 139 and the new measurement categories under MFRS 9 for the Bank s financial assets and financial liabilities as at 1 January 2018. (continued) MFRS 139 MFRS 9 Carrying value Carrying value 31 December 2017 Reclassification Remeasurement 1 January 2018 Bank Financial assets at FVOCI Financial Investments AFS : Opening balance 4,793,901 - - 4,793,901 To financial assets at FVOCI - debt - (4,487,401) - (4,487,401) To financial assets at FVOCI - equity - (118,847) - (118,847) To financial assets at FVTPL - equity - (187,653) - (187,653) Closing balance 4,793,901 (4,793,901) - - Financial assets at FVOCI - debt Opening balance - - - - From AFS - 4,487,401-4,487,401 Remeasurement - - (5,092) - Closing balance - 4,487,401 (5,092) 4,487,401 Financial assets at FVOCI - equity Opening balance - - - - From AFS - 118,847-118,847 Remeasurement - - - - Closing balance - 118,847-118,847 Total financial assets at FVOCI 4,793,901 (187,653) (5,092) 4,606,248 Financial assets at FVTPL and derivative financial assets Opening balance 124,219 - - 124,219 From amortised cost - Deposits & placements with banks and other financial institutions - 10,313-10,313 From AFS - 187,653-187,653 Total financial assets at FVTPL and derivative financial assets 124,219 197,966-322,185 Other liabilities Opening balance 254,715 - - 254,715 Remeasurement off-balance sheet loan, loan commitments and financial guarantee issues - - (596) (596) Closing balance 254,715 - (596) 254,119 17
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table shows the effects of the reclassification of financial assets from MFRS 139 categories into the amortised cost category under MFRS 9. MFRS 9 Carrying value 1 January 2018 Bank From financial investments AFS under MFRS 139 Fair value at 31 December 2017 - Fair value gain that would have been recognised during 2018 in OCI if the financial assets had not been reclassified - The following table analyses the impact, net of tax, of transition to MFRS 9 on reserves and retained earnings. The impact relates to the liability credit reserve, the fair value reserve and retained earnings. There is no impact on other components of equity. Impact of adopting MFRS 9 1 January 2018 Bank Fair value reserve Closing balance under MFRS 139 (31 December 2017) (14,762) Recognition of expected credit losses under MFRS 9 for debt financial assets at FVOCI 5,092 Reclassification of financial assets (debt and equity) from AFS to FVTPL 342 Opening balance under MFRS 9 (1 January 2018) (9,328) Collective allowance (''CA") reserve - 1.2% Closing balance under MFRS 139 (31 December 2017) 11,790 Reserve to retained earnings on adoption of MRFS 9 (11,790) Opening balance under MFRS 9 (1 January 2018) - Regulatory reserve ("RR") - 1% Transfer from retained earnings 24,976 Opening balance under MFRS 9 (1 January 2018) 24,976 Retained earnings Closing balance under MFRS 139 (31 December 2017) 609,213 Reclassification under MFRS 9 (342) Recognition of expected credit losses under MFRS 9 (including loan commitments) (12,549) BNM 1% RR (24,976) Reversal of 1.2% CA Reserve 11,790 Reversal of Collective Allowance under MFRS 139 2,746 Deferred Tax 1,222 Opening balance under MFRS 9 (1 January 2018) 587,104 18
3. Basis of preparation (continued) (i) Adoption of MFRS 9 "Financial Instruments" (continued) The following table reconciles: the closing impairment allowance for financial assets in accordance with MFRS 139 the opening ECL allowance determined in accordance with MFRS 9 as at 1 January 2018. MFRS 139 MFRS 9 CA ECL ECL 31 December 2017 Reclassification Remeasurement 1 January 2018 Loans, advances and financing - Individual and collective impairment 2,756-3,785 6,541 Loans/financing commitments - - 596 596 FVTPL - - - - FVOCI and amortised cost 16,509 (7,818) 5,422 14,113 19,265 (7,818) 9,803 21,250 Deferred tax assets Opening balance 10,817 - - 10,817 Remeasuremetn - deferred tax assets - - 1,222 1,222 Closing balance 10,817-1,222 12,039 19
3. Basis of preparation (continued) (ii) Adoption of MFRS 15 "Revenue from Contracts with Customers" MFRS 15 "Revenue from contracts with customers" replaces MFRS 118 "Revenue" and MFRS 111 "Construction contracts" and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. A new five-step process is applied before revenue can be recognised: Identify contracts with customers; Identify the separate performance obligations; Determine the transaction price of the contract; Allocate the transaction price to each of the separate performance obligations; and Recognise the revenue as each performance obligation is satisfied. Key provisions of the new standard are as follows: If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of reversal; There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment arrangements, to name a few; The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa; and As with any new standard, there are also increased disclosures. The Group and Bank have adopted MFRS 15 using the cumulative effect method and therefore the comparative information has not been restated and continues to be reported under MFRS 118 "Revenue" and related interpretations. The impact of adoption of the MFRS 15 on the Group s and the Bank s opening retained profits are set out below: As at 1.1.2018 Group and Bank Gross fees Tax effect Net impact DR/(CR) DR/(CR) DR/(CR) Impact to Opening Retained Profits arising from:- Fees for services transferred at a point in time upon satisfaction performance obligations (755) 181 (574) Fees for services transferred over time in respect of agency and guarantee fees 1,991 (477) 1,514 Net debit impact to Retained Profits as at 1.1.2018 1,236 (296) 940 There is no material impact on the financial position, comprehensive income, cashflows and earnings per share of the Group and the Bank on the adoption of MFRS 15 for the financial reporting period. (iii) Presentation of interest for derivatives and other financial instruments measured at Fair Value through Profit or Loss ("FVTPL") MFRS 9 introduced a consequential amendment to paragraph 82 (a) of IAS 1 "Presentation of Financial Statements", which is effective for accounting periods beginning on or after 1 January 2018. Under this amendment, interest revenue calculated using the effective interest method should be separately presented as a component of revenue on the face of the income statement. As the effective interest method does not apply to derivatives and other instruments measured at FVTPL, the interest arising on such instruments should not be included in the line item of "interest income" (except for gains and losses arising from related hedging instruments that are accounted for as hedges under IFRS 9). 20
3. Basis of preparation (continued) (iii) Presentation of interest for derivatives and other financial instruments measured at Fair Value through Profit or Loss ("FVTPL") (continued) Accordingly, the Bank changed the classification of interest income for financial assets measured at FVTPL from "Interest Income" to "Net gain and losses on financial instruments" for the current and previous financial quarters as reflected in Note 24 to the interim financial statements. Interest income and interest expense on derivatives instruments are also correspondingly reclassified to "Net gain and losses on financial instruments" as reflected in Note 24 to the interim financial statements. 4. Qualification of preceding annual financial statements The Bank's financial statements for financial year ended 31 December 2017 were not qualified by the auditors. 5. Seasonal or cyclical factors The Group's and Bank's operations are generally not affected by any seasonal or cyclical factors but are in tandem with the country's economic situation. 6. Unusual items due to their nature, size or incidence There were no unusual items affecting the assets, liabilities, equity, net income or cash flows of the Group and the Bank during the financial reporting period. 7. Changes in debt and equity securities There were no issuances, cancellation, repurchases, resale or repayment of debt and equity securities at the Bank's level during the financial reporting period. 8. Litigations against the Bank A chargor of a piece of land ("the Land") charged to the Bank as part of the collaterals for a syndicated facility granted to a borrower bya consortium financial institutions, had filed a claim against the Bank on 9 June 2016 for the sum of RM5,185,683.19 or in the alternative damages to be assessed, interests and costs, alleging that the Bank as Security Agent had failed to perform its contractual and/or statutory obligations in relation to the application of the sales proceeds of the Land and had wrongfully deducted the recovery and enforcement expenses, which included expenses for other properties/securities from the surplus of the sales proceed of the Land. As Security Agent, the consortium financial institutions will indemnify the Bank for the claim instituted against the Bank. The Bank had filed an application for disposal of the claim under Order 14A of the Rules of Court 2012. On 4 May 2018, the Kuala Lumpur High Court ( KLHC ) decided in favour of the Bank, by dismissing the chargor's suit, with costs. Nevertheless, one out of the four questions posed by the Bank was not answered in favour of the Bank, i.e. the chargor was not estopped from disputing the redemption sum. In this regard, the Bank had filed its appeal against the said part of the decision, which is fixed for case management on 7 August 2018. The chargor had also filed its appeal against the KLHC's decision. 9. Changes in the composition of the Bank There is no change to the composition of the Bank as at end of the reporting period. 10. Dividends A final dividend of 11.282 sen gross per share, amounting to RM88,000,000 in respect of the previous financial year ended 31 December 2017 was paid on 16 April 2018. The Directors now recommend the payment of an interim dividend of 5.769 sen gross per share amounting to RM45,000,000 for the financial year ending 31 December 2018, which is subject to approval from Bank Negara Malaysia. 21
11. Securities portfolio (i) Classification of securities portfolio: The Group The Bank 30-06-2018 31-12-2017 30-06-2018 31-12-2017 Financial assets at fair value through profit or loss At fair value Money Market Instruments Quoted Negotiable Instruments of Deposit 9,982-9,982 - Malaysian Government Securities 117,408 20,349 117,408 20,349 Malaysian Government Islamic Investment Issues 40,279 10,224 40,279 10,224 167,669 30,573 167,669 30,573 At fair value Quoted securities In Malaysia: Shares, warrants and REITS 31,521 38,696 31,521 38,696 Unit trusts 130,465 6,979 89,200 - Outside Malaysia: Shares, warrants and REITS 5,767-5,767-167,753 45,675 126,488 38,696 Unquoted securities Corporate bonds and/or Sukuk in Malaysia 2,783 1,775 22 - Corporate bonds and/or Sukuk outside Malaysia 17,028 17,028 - - 355,233 95,051 294,179 69,269 (ii) Financial assets at fair value through other comprehensive income ("FVOCI")/Financial investments available-for-sale At fair value The Group The Bank 30-06-2018 31-12-2017 30-06-2018 31-12-2017 Money Market Instruments Malaysian Government Securities 273,311 151,279 273,311 151,279 Negotiable Instruments of Deposit - 50,594-50,594 Malaysian Government Islamic Investment Issues 539,887 392,090 539,887 392,090 Cagamas Bonds 101,315 61,391 101,315 61,391 Sukuk Perumahan Kerajaan 80,264 80,280 80,264 80,280 994,777 735,634 994,777 735,634 Quoted securities In Malaysia: Shares - 6,296-6,296 Unit Trusts - 208,907-179,272 REITS 14,920 13,083 14,920 13,083 Outside Malaysia: REITS 33,831 10,977 33,831 10,977 Unquoted securities Corporate bonds and/or Sukuk in Malaysia 3,540,154 3,628,578 3,540,154 3,627,588 Corporate bonds and/or Sukuk outside Malaysia 153,403 206,066 153,403 206,066 Shares in Malaysia 21,809 22,803 21,809 22,803 4,758,894 4,832,344 4,758,894 4,801,719 Allowance for impairment of securities (a) - (7,818) - (7,818) 4,758,894 4,824,526 4,758,894 4,793,901 22
11. Securities portfolio (ii) Financial assets at fair value through other comprehensive income ("FVOCI")/Financial investments available-for-sale (continued) The Group and the Bank 30-06-2018 31-12-2017 (a) Movement in allowance for impairment losses: At beginning of the financial period/year 7,818 23,238 MFRS 9 reclassification to cost (7,818) - At 1 January 2018, as restated - 23,238 Amount made during the financial period/year - 2,298 Amount disposal - (17,718) - 7,818 The Group and the Bank Lifetime ECL 12 months ECL Non Credit Impaired Lifetime ECL Credit Impaired Total (Stage 1) (Stage 2) (Stage 3-IA) 30-06-2018 30-06-2018 30-06-2018 30-06-2018 (b) Expected credit loss: At beginning of the financial period, on adoption of MFRS 9 5,092 912 4,180 - Allowance made/(written back) due to changes in credit risk (40) (89) 49 - Exchange differences (92) (2) (90) - At the end of financial period 4,960 821 4,139-23